Will Renren Ever Make Money?

Next Monday, Renren will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

With its social network inevitably raising comparisons to American counterpart Facebook, Renren has plenty of promise in the budding emerging market. Yet unlike the American social-media giant, Renren isn't profitable, and despite its strong growth, it doesn't appear likely to become profitable anytime soon. Let's take an early look at what's been happening with Renren over the past quarter and what we're likely to see in its report.

Stats on Renren

Analyst EPS Estimate

($0.07)

Year-Ago EPS

($0.03)

Revenue Estimate

$45.23 million

Change From Year-Ago Revenue

41%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Where are Renren's earnings headed?In recent months, analysts have downgraded their views on Renren's future earnings prospects across the board. They've reduced first-quarter estimates by $0.02 per share and widened their 2013 loss projections by $0.05, but even worse, they've doubled their 2014 projected losses. All of that pessimism has weighed on the stock, which is down more than 5% since early February.

The problem with comparing Renren to Facebook is that Renren isn't even the biggest player in its own home market. Tencent Holdings and its Pengyou network had almost five times as many engaged users as Renren during 2012, and Renren has rapidly moved toward relying on gaming revenue rather than advertising.

Moreover, even Renren's home-field advantage hasn't produced better stock prices for the company. The Chinese government's blocking of Facebook naturally helps Renren and fellow domestic giant Baidu, and it appears that political favoritism is likely to keep external players at bay. Yet Renren hasn't taken advantage of that protectionist advantage to nearly the extent it needs to in order to survive the increasingly competitive Chinese social sector.

Yet one recent step shows that sentiment could be changing. Short interest among Chinese stocks has plunged, with Renren having only about 15% of the shares sold short that it had a year ago and portal/microblog specialist SINA seeing short interest drop 80% from year-ago levels.

In looking at Renren's quarterly report, keep in mind that Chinese New Year often depresses results. Strategically, though, the key to Renren's future is for it to figure out what it wants to be. Right now, with platforms that include its regular social-media offering, its online games, its social-commerce offering, its professional networking service, and its video-sharing business, Renren is trying to do too many things at once. Once it focuses itself, Renren could become a force to be reckoned with in time.

If you'd like to know more about the "Facebook of China," The Motley Fool has published a premium report on Renren, giving you a rundown of its opportunities and threats. Just click here to get started.

Click here to add Renren to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.